application for substituted service and leave to serve out of the jurisdiction
12 Section 40(1)(g) of the Bankruptcy Act empowers the Court to give leave for a bankruptcy notice to be served out of the jurisdiction.
13 Section 309(2) of the Bankruptcy Act deals with substituted service. It provides:
Where a notice or other document is required by this Act to be served on or given to a person, the court may, in a particular case, order that it be given or served in the manner specified by the Court, whether or not any other manner of giving or serving that notice or other document is prescribed.
14 The Court has jurisdiction to make an order for substituted service of a bankruptcy notice pursuant to this provision, even though Mr Oswal is out of Australia. In Battenberg v Restrom (2006) 149 FCR 128 (Battenberg) at [18]-[20], the Full Court observed:
[18] In Re Mendonca; Ex parte Commissioner of Taxation (Cth) (1969) 15 FLR 256 at 261, Gibbs J, sitting as a judge of the Federal Court of Bankruptcy, observed that s 309(2) and r 113(1) (which authorised the Court to give directions as to practice and procedure) conferred "ample power to order service outside the jurisdiction" of a bankruptcy petition. In that case the petition was issued after the debtor had left Australia. It seems that his Honour did not consider that fact to be a bar to such an order. In other words, exercise of the power conferred by s 309(2) is not conditional upon a debtor's presence in Australia. It is true that Gibbs J considered that an order for such service would be made only if one of the criteria identified in s 43(1)(b) were present. In this case the evidence does not presently establish, or deny the existence of, any of those criteria. That is no doubt because issue and service of the bankruptcy notice (as opposed to making a sequestration order) are not conditional upon the existence of one of those criteria.
[19] It is clear that a bankruptcy notice may be served out of Australia, subject to leave being granted by the Court. The only question is as to the mechanics of service. We accept that the notice, itself, can only be served by leave, but as we have pointed out, there is a history of serving notice of proceedings rather than the initiating writ. There is also a history of making orders for substituted service which do not involve actual service. Re Mendonca establishes that s 309(2) authorises service out of Australia even when the relevant process was issued after the debtor left Australia. The only jurisdictional requirement is that contained in s 43(1)(b) which has no present application. There is no reason why s 309(2) should not also authorise an order for substituted service of a bankruptcy notice made whilst the debtor is out of Australia. If, as in this case, that order does not involve service of the bankruptcy notice itself outside of Australia, s 40(1)(g) does not dictate that leave be obtained.
[20] Finally, we should say something about the inter-relationship between ss 40(1)(g) and 309(2). The appellant's case assumed that an order made for service of a bankruptcy notice out of Australia pursuant to the latter provision would also require leave pursuant to the former provision. For reasons which we have given, it is not necessary for us to consider the correctness of that assumption.
15 For the Court to exercise the jurisdiction to order substituted service under s 309(2), the Court must be satisfied that abnormal difficulties exist in effecting personal service on the debtor and that there is a reasonable probability that the debtor will be informed of the document as a result of the form of service identified (Ginnane v Diners Club Ltd (1993) 42 FCR 90 (Ginnane) at 92). These observations were made in relation to the substituted service of a creditor's petition, but they apply equally in relation to the substituted service of a bankruptcy notice (Equitrust Ltd v Bosiljevac [2007] FCA 323 at [9]).
16 The Full Court in Ginnane went on to observe that the two elements referred to above are not to be regarded as discrete requirements but "form a composite basis for the exercise of the discretion".
17 There was evidence before the Court of the unproductive steps taken by the solicitors of the bank to obtain Mr Oswal's address for service and also to ascertain whether Hotchkin Hanly had instructions from Mr Oswal to accept service of the bankruptcy notice.
18 Ms Bree Ludlow, one of the solicitors acting for the bank, deposed that on 21 February 2013, by email, she had advised Mr Peter van der Zanden, a partner at the law firm, Hotchkin Hanly, that the bank had lodged a new bankruptcy notice and asked Mr van der Zanden whether his firm had instructions from Mr Oswal to accept service of the bankruptcy notice.
19 Mr van der Zanden replied by email saying that his firm did not have instructions to accept service of the bankruptcy notice. He also went on to say that it was common ground that Mr Oswal did not live in Australia, and that it was Mr Oswal's position that the Federal Court, exercising power under the Bankruptcy Act, had no jurisdiction over him.
20 Ms Ludlow also deposed that she had later in March 2013 caused documents filed in this application to be delivered to Mr Peter van der Zanden of Hotchkin Hanly, and had asked whether Mr van der Zanden had an address for service for Mr Oswal. Mr van der Zanden replied by saying that:
We do not have an address for service for Mr Oswal.
21 In addition, Mr Oswal's attitude to the question of the service of process relating to this debt and the attendant bankruptcy proceedings, is further manifest by the fact that it was necessary for the bank to obtain orders for substituted service from the Supreme Court of Western Australia in respect of the originating process for the debt upon which the bankruptcy notice is founded. It was also necessary for the bank to obtain orders for substituted service of both of the bankruptcy notice and of the creditor's petition referred to in [10]-[11] above.
22 The evidence shows that, notwithstanding its efforts, the bank does not have reliable information as to an address for service for Mr Oswal and that Mr Oswal has not authorised his solicitors to disclose such address, or to accept service of the bankruptcy notice on his behalf.
23 I am satisfied, in the circumstances, that abnormal difficulty exists for the bank in effecting personal service of the bankruptcy notice on Mr Oswal.
24 As I have already mentioned, the evidence also shows that the law firm, Hotchkin Hanly, has acted on the instructions of Mr Oswal in a number of legal proceedings relating to the judgment debt and the attendant bankruptcy proceedings; and, indeed, continues to act for Mr Oswal in respect of the application for special leave to appeal to the High Court. I am also satisfied that service of the bankruptcy notice on the law firm, Hotchkin Hanly, will cause the bankruptcy notice to come to the attention of Mr Oswal, because I am satisfied that the solicitors in the exercise of their professional duty, would bring the notice to the attention of Mr Oswal.
25 Accordingly, I will make orders for the substituted service under s 309 of the Bankruptcy Act of the bankruptcy notice upon Mr Oswal by one or more of the means identified in [6] above.
26 Senior counsel for the bank also addressed me on the question of whether it is necessary for the bank to demonstrate at this stage of the process that the bank had a prima facie or good arguable case for the existence of a jurisdictional foundation for the Court to make a sequestration order in respect of Mr Oswal's estate upon any failure by him to satisfy the bankruptcy notice. This question was addressed by senior counsel for the bank because in submissions filed in the proceedings which Mr Oswal brought in December 2012 to set aside this Court's orders for substituted service and service out of the jurisdiction of the bankruptcy notice, Mr Oswal had contended that the basis on which those orders should be set aside, was that the Court, in making those orders, had not considered this question.
27 The bank made two submissions in relation to this issue.
28 The bank's first contention is that it is unnecessary for the Court to consider, at this stage, whether there is a prima facie or good arguable case as to the jurisdictional foundation for the Court making a sequestration order on a creditor's petition founded upon an act of bankruptcy arising from Mr Oswal's failure to comply with the bankruptcy notice.
29 Secondly, the bank contended that, in any event, the evidence which it has adduced demonstrates a prima facie or good arguable case for such a jurisdictional foundation.
30 I deal with the first contention.
31 It is necessary to have regard to s 43(1) of the Bankruptcy Act which defines the circumstances when an Australian court would have jurisdiction to make a sequestration order. That section provides as follows:
Subject to this Act, where:
(a) a debtor has committed an act of bankruptcy; and
(b) at the time when the act of bankruptcy was committed, the debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling-house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
32 For the following reasons, the bank's first contention should be accepted.
33 First, the Full Court in Battenberg held that a consideration of the jurisdictional criteria set out at s 43(1), does not arise in relation to an application for substituted service of a bankruptcy notice addressed to a person out of the jurisdiction, where the substituted service is to be effected in Australia.
34 The Full Court in Battenburg was concerned with an application to serve a bankruptcy notice addressed to a debtor out of Australia, by substituted service on an Australian law firm to be effected within Australia. The Full Court referred to the case of Re Mendonca; Ex parte Commissioner of Taxation (Cth) (1969) 15 FLR 256 (Re Mendonca). That case involved the service of a creditor's petition, not a bankruptcy notice, by substituted service by posting the creditor's petition to the debtor at an address in Portugal. Gibbs J (as his Honour then was) relied upon s 309(2) of the Bankruptcy Act as authorising substituted service of the petition on the debtor in Portugal. It is, also, significant that Gibbs J considered whether the jurisdictional requirement under s 43(1) had been satisfied. Gibbs J found that at the dates of the acts of bankruptcy, the debtor was resident, and still carrying on business, in Australia and that, therefore, the jurisdictional requirements were satisfied. The Full Court had regard to Re Mendonca, and, then went on to find that consideration of jurisdictional limits in s 43(1) had no application to the question of whether to order substituted service of the bankruptcy notice addressed to a person out of Australia. This is evident from the following observations:
[18] In Re Mendonca; Ex parte Commissioner of Taxation (Cth) (1969) 15 FLR 256 at 261, Gibbs J, sitting as a judge of the Federal Court of Bankruptcy, observed that s 309(2) and r 113(1) (which authorised the Court to give directions as to practice and procedure) conferred "ample power to order service outside the jurisdiction" of a bankruptcy petition. In that case the petition was issued after the debtor had left Australia. It seems that his Honour did not consider that fact to be a bar to such an order. In other words, exercise of the power conferred by s 309(2) is not conditional upon a debtor's presence in Australia. It is true that Gibbs J considered that an order for such service would be made only if one of the criteria identified in s 43(1)(b) were present. In this case the evidence does not presently establish, or deny the existence of, any of those criteria. That is no doubt because issue and service of the bankruptcy notice (as opposed to making a sequestration order) are not conditional upon the existence of one of those criteria.
[19] …There is also a history of making orders for substituted service which do not involve actual service. Re Mendonca establishes that s 309(2) authorises service out of Australia even when the relevant process was issued after the debtor left Australia. The only jurisdictional requirement is that contained in s 43(1)(b) which has no present application. There is no reason why s 309(2) should not also authorise an order for substituted service of a bankruptcy notice made whilst the debtor is out of Australia. If, as in this case, that order does not involve service of the bankruptcy notice itself outside of Australia, s 40(1)(g) does not dictate that leave be obtained. (Emphasis added.)
35 In my view, the circumstances of this case are indistinguishable from Battenberg. In that case, as in this case, the means of substituted service was service on a firm of solicitors in Australia. I am bound by the decision of the Full Court. It follows that the bank's first contention is upheld.
36 Secondly, even in the absence of authority, and had there been a need to give leave to serve the bankruptcy notice out of the jurisdiction under s 40(1)(g) of the Bankruptcy Act, I would have come to the same view. This is because the requirement to consider, at this stage, jurisdictional constraints attendant upon the making of a sequestration order related to the bankruptcy notice, would require the Court to embark upon an unacceptable degree of speculation. Section 43(1)(b) states that the crucial date by reference to which the debtor's connection to Australia (as described in ss 47(1)(b)(i)-(iv)) is to be determined is the date of the act of bankruptcy upon which the petition is founded. The issuing of a bankruptcy notice does not, of course, in itself give rise to an act of bankruptcy. It is only if the bankruptcy notice is not complied with, that an act of bankruptcy is committed.
37 Accordingly, it is not possible for a court to determine at the time that a bankruptcy notice is served, whether the jurisdictional constraints on the making of a related sequestration order will be met. All that a court could do at the stage of giving leave to serve the bankruptcy notice, would be to consider the debtor's circumstances at that time and make assumptions as to whether:
(a) the debtor's circumstances will change before the expiry of the date for payment of the sum demanded in the bankruptcy notice;
(b) the debtor will pay the sum demanded on that date - such that the failure to pay amounts to an act of bankruptcy; and
(c) the petition ultimately presented and relied upon at the hearing will rely upon that act of bankruptcy.
38 In my view, this level of speculation renders such an inquiry by the court inutile, because it does not operate as a reliable predictor of whether the jurisdictional requirement for the making of a sequestration order will be met at the relevant date. Thus, even if it had been necessary for me to give leave to serve the bankruptcy notice out of the jurisdiction under s 40(1)(g), I would not have regarded it as necessary for the bank to demonstrate that there was a prima facie or good arguable case that the Court would have jurisdiction to make a sequestration order founded on the act of bankruptcy arising for any non-compliance with the bankruptcy notice.
39 The bank's second, and alternative, argument is predicated upon the Court being required to consider whether there is a prima facie or good arguable case on the jurisdictional requirement for making a related sequestration order, by reference to the debtor's circumstances at the present time.
40 The bank contended that the jurisdictional foundation for the making of a related sequestration order, would arise under s 43(1)(b)(iii), namely, that Mr Oswal was carrying on business in Australia.
41 The bank adduced a considerable amount of evidence in relation to Mr Oswal's business activities in support of this contention. This evidence shows that, notwithstanding his departure from Australia, Mr Oswal remains a shareholder in five privately owned companies and that, of those companies, he is the sole shareholder of three companies, and he and his wife, Mrs Radhika Oswal, are the shareholders in the other two companies. In addition, there is evidence that Mr Oswal was, prior to his departure from Australia, a 30% shareholder in Burrup Holdings Limited, which is the holding company of Burrup Fertilisers Pty Ltd (now renamed), which conducts a profitable petrochemical business. The evidence also discloses that Mr Oswal was a director of Burrup Fertilisers, and during that time, a number of related party transactions took place between Burrup Fertilisers and Biz Dev International Pty Ltd, as well as another company called Oswal Projects Limited. In addition, the evidence also shows that Mr Oswal was formerly a shareholder of three other companies; as well as being the beneficial owner of the company, Garuda Aviation Pty Limited, the company whose obligations Mr Oswal guaranteed, and in respect of which the judgment founding the bankruptcy notice, was obtained.
42 In addition, there is evidence that Mr Oswal continues to conduct in Australia a number of proceedings in different Australian courts in respect of his investment as a shareholder in Burrup Holdings Limited.
43 Had it been necessary for me to do so, I would have decided that the evidence discloses a prima facie or good arguable case that Mr Oswal conducted, and continues to conduct business in Australia as the promoter of, and investor in, companies, particularly, companies related to the petrochemical industry and the supply of services to that industry. That is a separate business to the business conducted by each of the companies.
44 Accordingly, I will make orders for substituted service under s 309(2) of the Bankruptcy Act. As mentioned, it is not necessary to make orders giving leave to serve the bankruptcy notice out of Australia, as the bank has withdrawn its application for an order for substituted service of the bankruptcy notice on Mr Sanraj Bhawan, by post to an address in India.
45 I will reserve the question of costs.
I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.